For business owners looking to expand a business fleet, finding the right finance option to purchase commercial vehicles is a key consideration. Business owners usually have a choice between leasing and buying. Being aware of the advantages and disadvantages of each option will help you decide which will be the best way for you to build a fleet and drive growth.
Before financing a fleet, you need to consider the following factors to determine the best finance option: cash flow needs and turnover, the number of vehicles, vehicle type, and administration and maintenance costs.
Types of finance for purchasing commercial vehicles:
Purchasing vehicles gives you complete ownership, but this option requires a substantial cash investment. Alternatively, you could apply for a commercial car loan to finance a fleet and have the responsibility of monthly repayments.
- A business takes complete ownership of the vehicle, once all repayments have been made,at which point it can be sold at any time.
- No restricted mileage terms like in a lease agreement.
- Initial costs apply (a substantial down-payment, insurance premium, stamp duty, monthly repayments).
- Due to depreciation, a vehicle’s value drops to less than what it is financed for.
- The business owner is responsible for all maintenance costs.
A lease requires you to pay only a certain amount of the value of a vehicle – the difference between the cost price of the vehicle and its residual value. Once the lease agreement comes to an end, you have the choice of returning the vehicle or buying it at a depreciated price.
Leasing options are divided into the following types:
Operating lease: a business has full use of the vehicle for an agreed period of between three and five years and, in exchange, is responsible for lease rental payments that don’t feature on the balance sheet.
Finance Lease: works in the same way as an operating lease. A vehicle is leased from a finance company with the difference that tax deductions may apply.
Chattel Mortgage: a financial institution will finance the cost of the vehicle with the business making repayments until entire amount has been repaid. The main difference is immediate ownership of the vehicle.
- The offer of changing to updated vehicle models every few years after each lease agreement is terminated.
- Lease terms include warranty agreements to cover vehicle breakdowns.
- Tax benefits on GST and leasing costs may apply.
- Terms and conditions apply which can include: additional fees if mileage restrictions are exceeded and costs relating to terminating the lease early.
- The business does not own the vehicles.
Let our professionals at Simply Finance help you grow your business fleet. We will help you find the right finance option for you. Get in touch with us today.